We came across a long thesis on Alarm.com Holdings Inc (NASDAQ:ALRM) on ValueInvestorsClub by GLSV. In this article we will summarize the bulls’ thesis on ALRM. The company’s shares were trading at $55.32 when this thesis was published, vs. closing price of $59.61 on Jan 13^th.

Alarm.com Holdings Inc (NASDAQ:ALRM) is the provider of a leading platform for intelligently connected property, that offers an expansive suite of Internet of Things (IoT) solutions addressing opportunities in the residential, multi-family, small business and enterprise commercial markets. The company’s solutions include security, video and video analytics, energy management, access control, electric utility grid management, indoor gunshot detection, water management, health and wellness and data-rich emergency response. Through its large scale, ALRM processed over 325 billion data points across 150 million connected devices in 2023.

The author believes that the August-September 2024 selloff brought an attractive opportunity with ALRM – he claims that the current price is compelling for a business that is resilient during economic slowdowns and has a high level of recurring revenue. The bull thesis is based on the idea that ALRM has potential to significantly expand margins after several years of pressures from elevated R&D costs – management invested so aggressively in new technology that R&D cost growth exceeded revenue growth, but sooner or later these costs will need to be brought down and the company will benefit from a strong operating leverage effect. Another key argument of the thesis is that ALRM has a long growth runway across geographies and client verticals – revenue from outside the US is growing at 20%+, which can significantly boost total revenue growth, while commercial clients represent another high growth vertical.

If the abovementioned drivers do not fuel revenue and EPS growth in the near future, involvement from activist investors is very likely to speed up the process. All in all, the author believes that the current multiple of 4.4x SaaS revenue is undervalued; a target of 5.6x is assigned to the stock, which brings the target stock price to $75.00, or 26% upside from the current market price.

While we acknowledge the potential of ALRM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ALRM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.